Ryan Ranson opened the fourth CGU Finance Club meeting on Thursday, October 21st, by announcing the leaders of the investment competition which were:
* Red, with a return just under 12%
* Anthony, with a return just over 10%
They were both beating the market. Ryan also reminded club members to consider taking over the leadership positions within the CGU Finance Club starting in the coming spring semester.

Jeff Speakes, who has a PhD degree and is a CFA charter holder will come and speak to us next time. He is the President of Kern Economics and has previously worked as the Chief Economist at Countrywide Financial Corporation and taught formerly at CGU.

At the meeting after next, Joe Lumarda from Capital Group will come and speak to us. Thus, many interesting speakers are coming so please make sure to make time to come and listen. Do not miss out on these valuable opportunities.

Next, our faithful group member Jonathan Shearer gave a presentation on options trading and shared with us some strategies that he has used for the investment competition.

Firstly, he introduced what options are and how they work. He focused on the buyer side. In short, an options contract includes a buyer, who as the option to exercise at some time in the future, and the writer, who has the obligation of fulfilling its part of the contract should the buyer decide to exercise. The value is derived from an underlying asset, e.g. stocks.

Mr. Shearer went on and made a few examples to explain how the options work, what risks are involved for speculator and their massive possible returns. He explained the difference between the terms “in the money” and “out of the money”, when they have value and when not.

Jonathan gave us some interesting statistics about options which he came across while working on his strategies. Only 10% of the options are exercised before maturity, 60% are traded back to the market and 30% expire worthless. One of his strategies is to bet on volatility. He uses butterfly and straddle strategies and provided examples on when he has made a lot of money and when he has lost a lot of money using those strategies in our CGU Investment Competition, Wall Street Survivor. He especially likes to use them right before companies announce quarterly or yearly earnings numbers because it is hard to predict whether they will do better or worse than publicly predicted numbers from Wall Street analysts.

The end of the excellent presentation form Jonathan Shearer marked the end of the meeting and everyone is encouraged to attend the next meeting and listen to Mr. Jeff Speakes.

Until next time, study hard, keep investing in the investment competition and make sure to read the finance news to know and to be conversant about what is going on in the industry.

The third CGU Finance Club meeting took place this past Thursday, October 7th. The meeting started with a brief announcement from Daisuke Kiyokawa, Kosuke Inoue and Aiko Oshima where they introduced a trip to Japan from January 9th through January 16th where students can see how Drucker philosophy is practiced there.

Ryan then went through the rankings in the investment competition. Mr. Shearer is leading the competition by far with over 14% return and is the only one out of 20 competitors or so who is beating the S&P 500, ca. 5%, so far. It seems that the investment competition has turned into a competition for the second place.

Before Ryan introduced the guest speaker of the day, David Ward, he encouraged students to consider seriously to run for the leadership positions within the CGU Finance Club that will be available in the end of the semester.

Before sharing with you some of the things Mr. Ward talked about at the meeting, it is a must to give a small introduction on who he is. David Ward is a member of the CFALA and is also a Senior Portfolio Manager and Senior Vice President at U.S. Trust Bank of America Private Wealth Management. Hence, someone that everyone should listen to, given the chance.

He divided his presentation into two parts. First, he shared his experience as a portfolio manger and a financial advisor, and then he gave a presentation on CFA and what it takes to receive the CFA charter.

In the beginning of his talk, Mr. Ward asked the following question: Why should someone pay others who can’t beat the market? He said that what he tells his clients is that his job is to prevent the client from making mistakes. Individuals often act out on their emotions and make, as a result of that, bad decisions.

Today, many individuals pour money to the bond funds because they are scared. As an adviser, Mr. Ward said that he helps his clients to realize that there are other areas, besides the bond market, to where they can allocate their assets.

Asset allocation is one of the most important roles of a portfolio manager. Despite being the best bond asset manager in the world, living in a world with low inflation and low interest rates and looking into the future with high inflation and high interest rates, it is not a desirable situation to be in. In this circumstances, a good bond manager, who perhaps knows little about other asset classes, is not going to add a lot of value to his clients. One needs to find other assets to invest in also.

David Ward shared that investment managers regularly re-balance their portfolios, but a high transaction cost comes with doing so. If a manager can capture 90% of the S&P 500 index and reduce the transaction cost by 80%, then the manager adds value to the client. He went on and shared that today, emerging markets are hot, and if someone wants to participate in it, they can buy an ETF. The challenge for active managers, such as the ETF managers, is the high volatility that can frequently be seen. Hence, keeping the transaction cost to a minimum is a challenge.

Next, he gave a presentation on the Commercial Finance Association (CFA).

The CFA is a global franchise with more than 95000 member in over 130 societies. The curriculum is not very difficult, but it covers a very broad range of topics. The CFA program is more appropriate for individuals who want to become or that already are fund managers, than investment managers.

David Ward quoted the Financial Times where it said that “CFA qualification pursued part-time by those already hired, has become the industry benchmark in finance.” He showed also various job ads as an example for companies that require CFA qualification for certain positions or say it a plus.

CFA is a self-study curriculum with three levels of examinations. Interested individuals have to pass all three levels, and have a seven year time frame to do so, to obtain the diploma and then acquire four years of work experience to receive the CFA charter. The CFA curriculum is a practical, relevant education based on a practitioner-driven global body of investment knowledge. It emphasizes its ethical and professional standards at every level. The CFA has exam locations worldwide that take place in June and December of each year.

David Ward advised students who are interested in obtaining the CFA diploma to work on at least the first level of the curriculum while they are still in school because it is impossible to go through for people working full-time and who have kids.

The pass rates has gone down in the last 45 years from 90% to 40% or so but Mr. Ward explained that he thought the reason for that being that more and more people who are not in “the biz”, or haven’t been studying / are not familiar with the kind of material covered are mainly the once failing. People with a master’s degree in a finance related education or perhaps with 2 years of working experience in “the biz” have a much higher pass rate.

Mr. Ward informed the audience that the approximate total cost for level 1 is $1,175, excluding books, which is expensive and people should not sign up unless they have the time to devote to studying the material. However, compared to many master’s level programs, it is not very expensive.

The CFA Institute’s Mission is: “To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence.”

Most of CFA members are portfolio managers (25%), research analysts and consultants and half of the new charter holders come from Asia.

CFA Society of Los Angeles offers a lot of help for those who intend to take the tests. They offer regular classes and a real 6 hour practice exam a couple of weeks before the actual test. This extra help costs $1,499 for non CFALA members but $1,299 for CFALA members. There are also some independent companies that provide assistance. One of them is called Schweser and it offers a vast amount of study material such as the Schweser Study Notes.

As a final advise, Mr. Ward said that if someone wants to become a money manager, they should get a CFA diploma, but only if they are committed to pass the exam.

The next CGU Finance Club will take place on October 21st and all members and want-to-be-members are of course encouraged to show up. If any questions arise, please send an email to cgufinanceclub@gmail.com.

For those of you who missed the CGU Finance Club’s meeting on 9/23 here is a brief recap:

The top 3 performers in the investment competition at the time of the meeting were 4n7h0ny (7.67%), JMShearer5 (6.31%), and MrK_At_Drucker (2.74%). The S&P 500 return was 2.69% so these were the 3 contestants who were able to beat the market over this period. It is still not too late to sign up for the competition – go to the Finance Club’s Google Group for detailed instructions on how to join.

The first finance-related current event the club discussed was NBER’s recent announcement that the recession ended in June 2009. Beginning in December of 2007, the “Great Recession” was the longest recession since the Great Depression. The beginning and end of recessions are usually officially marked 12 months after the end of a recession; this time took longer because there were recent indications that pointed to another slowdown and NBER wanted to be sure the worst was over. If the typical “textbook” definition of a recession (2 consecutive quarters of decreasing GDP) were used, the start of the recession would be marked as the 1st quarter of 2009, much later than the actual start. NBER looks at the level of business activity taking place to mark the beginning and end of recessions, giving a more accurate estimation. Several economic indicators were analyzed over the period of the recession to see if they were leading or lagging indicators.

The next topic we discussed was the recent troubles CalPERS (California Public Employees Retirement System) went through. The nation’s largest pension fund, with roughly $212 billion in assets lost $70 billion in 2008 and 2009. These losses stemmed mostly from leveraged real estate investments and being forced to liquidate stock positions to meet funding requirements. CalPERS needs to earn 7.75% annually to meet its funding requirements but, for the 10 years ended June 2010, they only earned 3% annually. The fund’s new CIO, Joe Dear, is attempting to put the fund back on track to earn the necessary 7.75% by focusing on private equity, emerging nations, and hedge funds. CalPERS is well known for its shareholder activism and we looked at the “CalPERS Effect,” which is the tendency for stocks to outperform the market once they are put on their “Focus List.” Even with the negative attention on CalPERS, they have managed to do quite well from a risk/return perspective. Since 1990 the S&P 500 has had an annualized return of 8.207% with a standard deviation of 19.23%. Over the same period, CalPERS has had an annualized return of 7.481% with a standard deviation of 12.76%.

Our next meeting will be on 10/7 from 5:30 pm – 6:30 pm in Burkle 26. We will be joined by David Ward, Senior Vice President and Portfolio Manager at U.S. Trust Bank of America. Mr. Ward will be speaking to us on behalf of CFALA and will be discussing the CFA designation, how it has helped his career, and benefits of joining the CFALA.

The first meeting with the CGU Finance Club for the fall semester of 2010 has finally taken place. Many excited students showed up at Burkle 16 which hopefully is a glimpse of a very bright semester for our dear club.

Ryan, the club director, opened the meeting by introducing the club’s mission statement, which is:

“To provide a mutual learning environment so that each member can share his or her financial knowledge and learn from each other.”

Professor Jay Prag, one of the nation’s finest professor, then discussed various risk factors for the US economic growth in an intermediate term, such as:
* Unemployment and how a double dip recession will certainly not help if it becomes a reality.
* Europe: The debt problems the P.I.G.S. (Portugal, Ireland, Greece and Spain) are experiencing.
* How the US debt and government spending, etc., will eventually push up interest rates.
* US taxes: The “Bush tax cuts” expire in the end of 2010 and are expected to let expire for individuals earning 200,000 (perhaps even down to 150,000) and more. This group already pays 65% of the nation’s taxes.
* The upcoming elections and how the government might experience stalemate. It can prove to be good for the society, but not necessarily for the economy.
* Financial reform bill: It proposes a lot of things but nothings has actually been done.
* The stagnation of Japan.
* Some say China will be the largest economy by this time next year while other suspect that underlying corruption might burst their bubble.

The leaders of the Finance Club then introduced themselves and their roles:
* Ryan Ranson is the director.
* Nicolas Espinosa is the assistant director and is in charge of the investment competition.
* Dali Cao is in charge of external communications.
* Jón Magnús Kjartansson is responsible for the club’s blog and website .

Ryan scrolled quickly through the Finance Club’s plans for the semester, including:
* Investment competition.
* Guest speakers – please let us know if you know someone good.
* Resume & cover letter day – everyone is encouraged to apply for internships and jobs early!
* CFA information day.
* Election for a new leadership team – takes place during the second last meeting of the fall semester.

Next up was Nicolas, who explained all the basic knowledge we need to know about the investment competition. The platform is called “Wall Street Survivor” and is located at the very surprising home page: http://www.wallstreetsurvivor.com. Every member of the Finance Club is encouraged to sign up and a code will be provided to enter the competition. The top competitor will receive nice prizes and Ryan, A.K.A. Mr. generous, announced that he would buy the last person a cup of coffee :)

If you have not signed up for the CGU Finance Club, now is a good time to do so. It costs only $15 and the following is how you join the club:
1. Start a gmail account if you do not have one already.
2. Search in Google groups: “CGU Finance Club” and click on the link.
3. Send a request to be part of the CGU Finance Club.
4. Accept the request.

Now approximately seven weeks have passed since the investment game started. During this period, the S&P 500 Index has gone up by 6.95%. The top five contestants so far are the following (including their total return):

The S&P 500 total return during the first 3 weeks of the investment game is 1.84%. That means that 9 out of 23 participants are beating the market so far. The 4 leading competitors have accrued an interesting total return:

1. MrKfromDruckerSchool: 14.23%
2. Yi Hong: 10.92%
3. WEIFEI: 10.92%

Of course one may never underestimate the influence of short-term luck. However, everyone is doing a good job and hopefully learning a lot about how the market works. Keep on trading!

18 days have passed since the investment game started and some competitors have shown some great potential. Yi Hong is currently leading the competition with a total return of 8.88%. WEIFEI and Isao are the first and second runners up making a total return of 3.56% and 3.05% respectively. In comparison, the return of the S&P 500 Index during the same period has been 0.95%. Well done!

In other news, the second CGU Finance Club meeting of 2010 will be held on Thursday, February 18th, in Burkle 14 from 5:30 to 6:30 PM. You are encouraged to come and listen firsthand to Professor Schellhorn talk about the field of Financial Engineering. Other agendas are market update, further investment game update and pizza will once more be served, so don’t miss out on a great afternoon with the CGU Finance Club.

Use the information and directions below to join the game.
Game ID: CGUSpring2010
Game Password: Drucker
1. Open this link and read the competition summary:
http://vse.marketwatch.com/Game/StartViewGame.aspx?id=CGUSpring2010
2. Click on the 'Join Game' link.
3. If you are an existing Virtual Stock Exchange member, enter your
Email address and Password in the login panel and get set to trade. If
you are a new user, follow the link to register - it's easy!
4. Follow the instructions and start trading!